The Japanese Yen recovered from a two-week low against the US Dollar on Wednesday after data revealed an acceleration in Japanese wholesale inflation, strengthening the argument for a Bank of Japan interest rate hike next week.

Meanwhile, the Dollar remained strong against other major currencies as markets awaited the release of US inflation data, which could offer insights into the potential pace of Federal Reserve rate cuts. 

The greenback dipped 0.19% to 151.685 Yen at the time of writing after reaching a high of 152.18 Yen overnight, its strongest level since 27th November.

Japan's corporate goods price index (CGPI), which tracks the prices companies charge one another for goods and services, increased by 3.7% in the last month compared to a year earlier, surpassing the market expectation of a 3.4% rise and marking the fastest annual growth since July 2023, Reuters reports.

The market-implied probability of a quarter-point rate hike by the Bank of Japan on 19th December was last recorded at 27%.

“The data is leaning towards a hike. Put it this way: if they raise, it's a very defendable position,” said Bart Wakabayashi, co-branch manager at State Street in Tokyo.

“We've seen overall very strong economic numbers in the US,” he added.

“All the reasons that we bought the Dollar in the first place, they still persist. If you ask me if I think we'll see 145 or 155 (Yen per Dollar), at this point, I'd say 155.”

The Dollar index, which tracks the currency against six major peers, edged up to 106.38 on Wednesday after hitting a one-week high of 106.63 in the previous session.

Traders are currently assigning an 85% probability to a quarter-point rate cut by the Federal Reserve on 18th December.

Economists predict that both headline and core consumer prices in the United States rose by 0.3% in November, following previous increases of 0.2% and 0.3%, respectively.

“Should this scenario materialise, there could be concerns that the Federal Reserve may not be able to cut rates as quickly as hoped, potentially benefiting the US Dollar,” according to James Kniveton, senior corporate FX dealer at Convera.